Facebook And Microsoft Are Working On A Deal, And It Could Change Everything About Advertising

Facebook and Microsoft are working on a deal that, if completed, would put Facebook one huge step closer to launching an ad network that could rival Google's in size, and change the way advertising is done online forever.

According to several industry sources, Facebook is in negotiations with Microsoft to buy Atlas Solutions, the ad-serving product Microsoft acquired when it bought aQuantive for $6 billion in 2007.

Our sources are outside of Facebook and Microsoft.

Microsoft has been trying to sell Atlas for years, and one of our sources is close to a company that was interested in buying it. In recent days, Microsoft ended negotiations with this company, and said it was moving forward on a deal with Facebook.

Since then, Facebook and Microsoft employees have reached out to other ad tech companies to do research for the deal. A source at one of these companies briefed us on the details of those conversations.

Though acquiring Atlas was the main reason Microsoft bought aQuantive for $6 billion in 2007, it seems like Facebook will pay a much lower price. One source says that prior to Facebook's negotiations with Microsoft, the highest bid for Atlas was $30 million. Microsoft has already written off most of that $6 billion.

Press representatives for Facebook and Microsoft declined to comment on this story. We haven't heard that the deal is about to close, only that talks are serious. It could fall apart.

Building or buying ad-serving technology is seen as one of the last tasks Facebook needs to complete before it can launch, at scale, an ad network for third-party Web sites.

"[Facebook] needs infrastructure because they are reliant on too many intermediaries," says one industry source.

In 2007, Google paid $3 billion to buy its own ad-serving product, DoubleClick for the same reason.

The value of a Facebook-powered/Atlas-supported ad network could be tremendous.

Here's why.

Facebook is the only company in the world that has a billion email addresses, home addresses, and phone numbers on file.

This asset allows Facebook to do something no other Website can.

Facebook can tell marketers whether or not a Facebook user saw, on Facebook.com, an ad for a product before going to the store and buying it.

What's really exciting is what it could do with an Atlas-supported ad network: perform the same trick for the rest of the Internet.

Facebook computers could track Facebook users across all sites partnered with Facebook, keeping track of what ads these users see and what products they later buy.

A Facebook-partnered website that serves an ad that later leads to a purchase will be able to take credit for helping that sale happen. Websites will be able to charge more, and Facebook will take a piece of the action.

What has to be thrilling to Facebook executives is that some of these Websites will have better, more naturally-situated ad inventory than the tiny, annoying ads currently on Facebook.com. Facebook will finally be able to leverage its real asset, data, to take advantage of better inventory off of Facebook.com.

There are a couple obstacles Facebook has to overcome to make this vision a reality.

First, it will have to keep people calm about what may look like an invasion of privacy. That shouldn't be a problem, because Facebook won't actually be invading anyone's privacy. All the data flying back and forth will be anonymous and encrypted — "hashed," to use Facebook's terminology.

Second, Facebook will have to actually build the tech behind such a sophisticated product. That'll be hard.